Bayern handed out a masterclass when it cruised to a 3-1 win at the Emirates Stadium on Tuesday night to all but end Arsenal's UEFA Champions League ambitions.

Wenger, however, insists he has the basis of squad which can develop itself into one of the most feared teams in Europe.

"We are not far away, but it is difficult to convince you today," the Arsenal manager said.

"We have to be clever. It costs a lot of money and it costs intelligent work.

"I believe in some areas of our team we can compete with anybody in the world, we speak about the Wilsheres, the Cazorlas and we have a very strong technical basis, but we have to be more efficient, strengthen the team where in the positions we feel where we are a bit weaker.

"But for me we have a basis of a team that is very strong."

Despite all of the negative recent headlines surrounding Wenger and his squad, the Gunners boss remains determined to keep the players focused on the job in hand - which continues with the visit of English Premier League struggler Aston Villa on Saturday (2.00am Sunday AEDT).

"I am in a strong mood because if I am not I don't see how my team can be," he said.

"I have enough experience in my job to know you have to deal with all kind of situations and this is one that is difficult to handle but it's also a good opportunity to show that we have strength and we don't have to go too 'over-disastrous' about it.

"We are fighting for a Champions League place, not against relegation and we have to take that in a positive way if we are to stay at the top."

Arsenal is set to announce its latest interim financial results next week, which are expected to show another healthy cash reserve available to be ploughed back into the squad in the off-season - should Wenger wish to spend it.

The Gunners boss feels the new commercial deals which are set to kick in following their 2006 move to their new 60,000-seater home at Ashburton Grove will also help retain key men likeJack Wilshere rather than see them follow former captainsCesc Fabregas andRobin van Persie out of the club.

He said: "In England there is a way of thinking that every problem is sorted out just by spending money, but that is not always the case.

"If it was like that, the same teams would win the Champions League every year because there are two or three clubs in Europe who are richer than everybody else and do not play in the Champions League.

"I believe that the problem today is not the money, it is to find the talent that strengthens your team.

"We also have to be faithful to what this club is about, which is to give a chance to the young players we educate - that is vital - and therefore to bring in the players only who give us really a plus.

"If we find tomorrow a player of top, top, top quality, we will take him."

Arsenal looks set to go an eighth season without winning silverware.

Wenger, however, insists getting his team capable of maintaining a sustained title challenge will always remain top of the agenda.

"Trophies for me is basically the championship and Champions League because that is where the real quality comes out," he said.

"This year you have first to consider the quality comes through the championship and not through the FA Cup or through the Capital One Cup.

"The real quality of the team is judged on where you are on a consistent level in the championship and where you are in the Champions League.

"We are a bit short, but we are not far away and we have to reduce that gap."

Wenger added: "The competition in the Premier League is absolutely massive for everybody.

"It is difficult to guarantee for anybody that they will win the Premier League - this year Manchester United looks well ahead, but usually it is very tight."